iran-tech
Business Management

A sanctions-free Iran: The world's biggest untapped market?

Apple, HP, Boeing, General Electric—what do they all have in common? Quite broadly, of course, they are all American tech research and manufacturing companies—but more recently, they’ve had their eye on entering Iranian markets. Given that America and Iran haven’t been on the best of terms since the 1979 revolution that installed an actively anti-Western government, this may come as a bit of a surprise. If you haven’t just woken up from a months-long coma, you’ll be aware, however, that a nuclear deal is in the works that could lead to the lifting of the majority of the economic sanctions that have been piled onto Iran. If you have just woken up from a months-long coma, you’re about caught up now.

So if the sanctions are lifted, what is likely to happen? Well, As Ramin Rabii, group chief executive of Turquoise Partners (the largest manager of foreign funds on the Tehran Stock Exchange), told the BBC, “Iran is the last, large, untapped emerging market in the world”. Large, certainly—with a population of around 80 million, Iran is a close third behind Turkey and Egypt in terms of size. But does it really have ICT market potential?

Actually, yes—though as it’s been about 36 years since Iran began its isolationist policies, there has been plenty of time for a lot of people, particularly in the Western world, to form misconceptions about the place. Pictures abound of Iran as a land of hovels, sheikhs, and terrorists, and many are quick to dismiss it as just another Middle Eastern oil state. Grains of truth are there: parts of Iran definitely qualify for “developing nation” status, and there’s no denying that its energy sector has historically been (and currently is) its biggest source of income.

However, between 1980 and 2012, Iran’s human development index has increased by an average of 1.6% annually—versus the 0.73% average managed by other countries in its HDI category of “High Human Development”. That effectively means that Iran has improved standards of living, access to information, and lifespan/health. And, as I have written about before, Iran’s scientific research output has been increasing at a breakneck rate since the early 2000s, which may lead to increased independence from oil wealth if that research can escape universities and flow into the corporate world. Add to that a healthy and growing ICT infrastructure, a cell phone penetration rate above 100%, high rates of internet access, an increasingly young and educated population, and—perhaps most vitally—a large and growing middle class, and you get what starts to look like a very nice market for Western tech firms to break into.

And it turns out that most people who have considered the issue would agree: as Asa Fitch and Nicholas Parisie point out, Iran’s 80 million people, prior to 1979, had ready access to Western consumer goods and many would not mind getting those back. And as their urban population and middle class have soared, so has their spending power.

The evidence of Iranian demand for Western technology gets even stronger when you consider that, even though domestic production of smartphones is on the rise, 75% of the country’s smartphone users are using devices that were imported illegally. Think you can’t buy an iPhone in Iran? It’s actually not as difficult or expensive as you might assume; Reuters actually estimates that there are 100 stores selling Apple products in Iran’s capital city of Tehran alone.

Though these resellers, of course, must use roundabout ways of obtaining their MacBooks, the fact that the demand for them is strong enough to warrant the difficulty in establishing supply chains says a great deal about how receptive the market would be for direct sales. Apple has been considering the notion for some time now, as have many other companies.  Hewlett-Packard already has Iranian companies headquartered in Dubai that it has authorized as direct resellers of its products—and this is really just the tip of the iceberg.

Not only is there interest in selling western goods in Iran, but interest in the investment opportunities offered by Iran’s ICT, nanotechnology, and energy sectors has also spiked, with the Tehran Stock Exchange surging upwards by 8% [autoplaying video in link] directly after the potential deal was announced. Iranian president Hassan Rouhani has been trying to attract foreign investment for some time, and combined with his overall push for liberalization (especially regarding the internet and ICT), privatization, and reconciliation a success may actually be in sight. The New York Times quotes him as saying to the state-run Islamic Republic News Agency: “We cannot shut the gates of the world to our young generation. Once, there was a time that someone would hide his radio at home, if he had one, to use it just for listening to the news. We have passed that era.”

But even with a successful deal resulting in lifted sanctions—which many are optimistic about—obstacles to Iran’s success still exist. While it is true that Iran has come a long way, and may go a lot further, it has been cut off from the outside world for a long time. Its banking system remains isolated, out-of-date, and shaky, and will have to do some serious work to update itself to standards that will allow international connections. While its companies are being privatized, the process has been riddled with cronyism and corruption. And even if it does open itself to worldwide trade, the cultural barriers of doing business with a strictly Sharia-compliant country may prove an inconvenience.

In theory, Iran is a country with a lot of potential, both as a consumer market and an investment opportunity; in reality, it has a lot of catching up to do. Its repressive political system, unreliable economic policies, and intolerant social norms do not exactly meet the qualifications that will make it safe enough for businesses to approach without higher-than-average caution.

However, both its growing middle class and increased digital connectivity are indicators that change could be on the not-so-distant horizon. With all of the interest that even a possible deal has sparked, it seems it is not far-fetched to consider the possibility that Iran could become a vibrant new market.

Iran has seen a large increase in its scientific output over the last decade and that has been concurrent with an increase in many other measures of progress. Put simply, Iran’s potential to transcend its stereotypes is getting harder and harder to ignore. In many ways, Iran is a modern country just waiting for its system to catch up with where it has already gotten. Case in point: despite Twitter being blocked in Iran, both Ayatollah Khamenei and President Rouhani have active accounts.

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Andrew Braun

Andrew Braun has an eclectic taste in music, a crippling addiction to change, and a time-consuming learning habit. He has held jobs as a writer, a web designer, a farmhand, a handyman, and a teacher, and plans to travel the world, teach, write, and work towards a master’s degree in political science.

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